Making Tax Digital for Income Tax: What You Need to Know

From April 2026, Making Tax Digital (MTD) for Income Tax will bring major changes to how many sole traders and landlords report their income to HMRC. At Exchange Accountants, we’re helping clients prepare for what will be a significant shift in tax compliance — not just in terms of timing, but also in the systems and processes you’ll need in place.

Who Will Be Affected — and When

MTD for Income Tax will apply to individuals who receive income from self-employment and/or UK or foreign rental property. The exact date you’ll be brought into the MTD regime depends on your qualifying turnover:

• If your total gross turnover from self-employment and property income exceeds £50,000, you will be mandated to join from April 2026.

• If your turnover falls between £30,000 and £50,000, MTD will apply to you from April 2027.

• For those earning between £20,000 and £30,000, the requirement begins in April 2028.

HMRC is continuing to explore ways to bring the benefits of digitalisation to those earning under £20,000, so this threshold may be lowered further in future.

Qualifying turnover refers specifically to your gross trading and property income as submitted in your most recent Self Assessment tax return. Other types of income, such as PAYE salary, pensions, dividends, and partnership income, are not considered when calculating this threshold.

What Will Be Required Under MTD for Income Tax

There are three key components to MTD: digital record keeping, quarterly updates, and year-end finalisation.

First, you’ll be required to maintain digital records of your income and expenses. These records must be kept using MTD-compliant software and must include the amount, category, and date of each transaction. For those below the VAT threshold, simpler three-line accounting (reporting only total income and total expenses) will be an option. While it’s best practice to maintain your records in real time, they simply need to be completed before the quarterly submission deadline.

Second, you’ll need to submit quarterly updates to HMRC. These updates will summarise the totals of each income and expense category for the quarter. No tax or accounting adjustments are needed at this stage — these updates are not mini tax returns, but simply a way to keep HMRC informed on a more regular basis.

Each tax year will be split into four standard quarters, and the deadlines for submissions will fall one month and two days after the end of each period. You can opt to align your reporting with calendar quarters, but the submission deadlines will remain the same. If you have multiple qualifying income streams (e.g., self-employment and rental income), you’ll need to submit a separate return for each. This means that you could be submitting up to eight quarterly updates per year — four per income source.

The third and final stage is the year-end finalisation. This will replace the current Self Assessment return. At this point, you’ll adjust your quarterly figures for tax and accounting purposes, add any additional sources of income (such as employment or savings), and apply for allowances or reliefs. This final submission will be due by 31 January following the end of the tax year, as is currently the case under Self Assessment.

No More HMRC Portal for Submitting Returns

A major change under MTD is that HMRC’s online portal, which millions of individuals currently use to file their tax returns, will not be available to those within the MTD regime. Everyone affected will be required to use third-party MTD-compliant software for both quarterly updates and their annual final declaration. This is known as a “full software journey.”

Special Considerations for Joint Property Owners

For those who own rental property jointly, HMRC has introduced some simplifications. You may choose to either maintain full digital records for your share of income and expenses, or simply record a single total amount for your share each quarter. For the quarterly update, you can report either the full income and expenses breakdown or just the income, with your share of expenses being included in the year-end declaration. The option to use three-line accounting is also available to joint property owners who meet the eligibility criteria.

What Happens If You Miss a Deadline?

The good news is that the new penalty system is designed to be more forgiving. If you miss a quarterly submission, you won’t be penalised immediately. Instead, you’ll receive a penalty point. A £200 fine will only be issued after you accumulate four penalty points. Points expire after 24 months, meaning occasional errors shouldn’t cause major issues — provided they’re not repeated.

However, as part of the Spring Statement 2025, the government confirmed that late payment penalties will become more severe from April 2025. If tax is overdue by 15 days, a 3% penalty will apply. If overdue by 30 days, a second 3% will be added, and for debts over 30 days old, a daily interest charge of 10% per annum will apply. Staying up to date with MTD submissions and payments will be more important than ever.

How Exchange Can Help

We’re already working with clients to help them prepare for MTD for Income Tax. Whether you need to adopt software for the first time, review your current setup, or understand how your reporting obligations will change, our team is here to guide you.

MTD is not just a software change — it’s a shift in how tax is reported and managed. With the right support, you can reduce admin, improve visibility, and remain fully compliant with HMRC’s requirements.

Get in touch with us to find out more, or visit our dedicated MTD hub to explore our segmented guides and tailored advice.